Understanding the Clusters

Recently I completed a short term course on faculty development. During this course, participants were professors, bankers to scientists. All of them were associated with entrepreneurship development in various capacities. There was one group of assistant professors who were associated with a clusters development unit of a leading university. But they were erratic in terms of participation and the resource person was not happy with their performance.  But they become popular among the batch for wrong reasons. And other adult learners started calling them ‘Clusters’. Here my objective is not to discuss what happen in the class but this blog’s basic purpose is to provoke and offer a nuanced explanation of cluster as a concept and its relevance in India.

Cluster:  In 1990, Michael Porter – a well-known professor at Harvard Business School introduced this concept and elaborated it with various examples. Since then, this word has emerged as tool for economic development in various geographies. Several experts, economists and development practitioners did work on this economic concept.

What is a Cluster? In the Harvard Business Review (HBR), Michael Porter wrote, “Clusters are geographic concentrations of interconnected companies and institutions in a particular field. Clusters encompass an array of linked industries and other entities important to competition. They include, for example, suppliers of specialized inputs such as components, machinery, and services, and providers of specialized infrastructure. Clusters also often extend downstream to channels and customers and laterally to manufacturers of complementary products and to companies in industries related by skills, technologies, or common inputs. Finally, many clusters include governmental and other institutions—such as universities, standards-setting agencies, think tanks, vocational training providers, and trade associations—that provide specialized training, education, information, research, and technical support.”

Porter added, “Today’s economic map of the world is dominated by what I call clusters: critical masses—in one place—of unusual competitive success in particular fields. Clusters are a striking feature of virtually every national, regional, state, and even metropolitan economy, especially in more economically advanced nations. Silicon Valley and Hollywood may be the world’s best-known clusters. Clusters are not unique, however; they are highly typical—and therein lies a paradox: the enduring competitive advantages in a global economy lie increasingly in local things—knowledge, relationships, motivation—that distant rivals cannot match.”

Shedding light on this concept, The Economist stated, “Clustering is the phenomenon whereby firms from the same industry gather together in close proximity. It is particularly evident in industries like banking. Banking centres in cities such as London and New York have thrived for centuries. Hundreds of banks cluster there, close together and within easy walking distance of each other. This makes it easier for customers to choose between them, and might be thought to act against each individual bank’s best interests.”

Economist further added, “Modern high-tech clusters often gather round prestigious universities on whose research they can piggyback. Silicon Valley is near Stanford University, for example, and similar high-tech clusters are gathered around MIT near Boston in the United States and around Cambridge University in Britain.
One of the most famous clusters is that of the Hollywood film industry. When the big movie studio system broke up in the 1930s it fractured into a large number of what were essentially small specialist firms and freelancers. Clustering around Hollywood allows each of these small units to benefit as if it had the scale of an old movie studio, but without the rigidities of the studios’ wage hierarchy and unionised labour.”

Emergence of clusters is not restricted to the developed world. Several emerging and developing countries adopted this approach in couple of decades and intensifying economic activities in certain geographies.
In emerging countries, their size varies from small to big. Irrespective of size and scale they create employment for skill workforce. In various cases, the clusters are nurturing innovations and new ideas which are strategically important for them.
Achieving competitiveness and efficiency in various sector, clusters are playing a crucial role where they becoming a backbone of industrial and export production in India.  In India, majority of clusters are associated with micro, small and medium enterprises. They are playing a crucial role in reducing hardship.

Types of Clusters in India
Industrial Clusters
Manufacturing Clusters
Handloom Clusters
University Clusters
IT Clusters
Services Clusters

To diffuse innovation culture, NInC proposes to seed Cluster Innovation Centres (CICs) in industry clusters. This centre will act as a networking hub/arm of the cluster, forge linkages between various stakeholders, initiate and assist innovation activities acting as catalysts and  facilitators. With a lean management structure, this body will aid the cluster and its ecosystem  in connecting with each other, provide guidance to various stakeholders when needed, organize  initiatives to promote growth, channel various incentives that benefit the cluster and act as an  incubating body managing the growth of innovation in the cluster.(1) 

National Innovation Council and Clusters in India
The Union Government set up National Innovation Council in 2010 under Sam Pitroda – a well-known technocrat who headed this apex body. Since its inception National Innovation Council played a crucial role in encouraging innovation and cluster development. NIC did comprehensive studies on various clusters. They gave policy suggestion on various issues related to cluster development and entrepreneurship.

Some new clusters identified by NInC  
Auto Components Cluster – Faridabad, Haryana,
Ayurveda Cluster – Thrissur, Kerala,
Bamboo Cluster – Agartala, Tripura,
Biotech & Pharma Cluster – Ahmedabad, Gujarat,
Brassware Cluster – Moradabad, Uttar Pradesh,
Food Processing Cluster – Krishnagiri, Tamil Nadu
Furniture Cluster – Ernakulam, Kerala

A case study by IIM B Researchers finds, “The Moradabad Brassware Cluster, in Uttar Pradesh, is mainly focused on the export market. The annual turnover of the cluster is over Rs 3,500 crore of which 80% is earned through exports of metalware, including brassware. The cluster has evolved from utilizing only brass a decade ago to now incorporating other metal alloys. Despite growth in the number of exporters in the cluster, there has been a significant decline in the number of artisans due to challenges in living conditions, wages, raw material procurement, prices and stricter international compliance norms.” NInC was closely associated with this study.

Cluster Innovation Centre, University of Delhi
Ministry of Human Resource Development and National Innovation Council started Cluster Innovation Centre (CIC) under the University of Delhi. Cluster Innovation Centre started in 2011. They run B. Tech four years degree in innovation, mathematics etc.According to its official site, these are broad objectives of CIC:
Connecting research with application for the benefit of society
Support application oriented research to solve real world problems
Focus on developing affordable innovations that can benefit a large number of people and at the same time commercially viable and sustainable.
Emergence of cluster as an engine of increasing economic activities depends on various factors. These are location, connectivity, availability of raw material, easily available work force, favourable industrial policies, adequate power supply and strong funding ecosystem. Enabling all these factors of cluster development is not easy. It requires a vision for development and political will.

Reference:

 (1): http://innovationcouncil.gov.in/images/stories/report/Industry_Innovation_Clusters.pdf(2): http://www.innovationcouncil.gov.in/index.php?option=com_content&view=article&id=305:national-innovation-council-success-story-published-in-uns-global-innovation-index-2013-report&catid=14:news&Itemid=13

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